Saturday, December 10, 2011

On Wednesday, The Singapore government imposed a new 10% stamp duty on foreigners and companies buying private residential property in the city state. The move, its fifth in the past two years, is the first in 15 years targeted at foreign buyers.

The stamp duty, effective from Dec 8, is in addition to the existing buyers' stamp duty, which is 1% for the first S$180,000 of the purchase price, 2% for the next S$180,000 and 3% for the rest, The Straits Times reported.

Permanent residents who already own a property, and who are buying a second or subsequent property, will now have to pay an extra stamp duty of 3%. Singaporeans who already own two properties and are buying a third or subsequent property will also pay extra stamp duty of 3%.

For a S$1 mil property, a foreigner will have to pay an additional buyer's stamp duty of S$100,000 on top of the current S$24,600.

The move underscores two important issues.

The first, that inspite of the “open and free” market system there, the government is ready to swallow the bitter pill of plying measures that may well add to an already weakening Singapore economy, if those measures were to be the salvation of the country's greater economy in the long-term.

The second is its timing. Why, at this juncture when European leaders are meeting this week in an attempt to solve the eurozone crisis?

Thus far, foreigners and Permanent Residents, many of whom are Malaysians, have enjoyed a fairly “open and free market” when it comes to property ownership. Until Wednesday, they faced only certain restrictions in buying landed homes.

Notwithstanding this open, free and transparent system, Singapore has a two-tiered property market. There is the HDB (or Housing Development Board) and the private residential market. HDB housing makes up the bulk of the market, at about 80%. Private residential market accounts for only 20%.

The fact that the government is concerned about prices shooting further in this 20% portion underscores the primacy of the property sector in the country's greater economy.

It also underscores its vast exposure in terms of value, that this 20% commands in Singapore's property market. This private residential portion is primarily owned by foreigners where prices are many times that of the HBD portion.

In the event the eurozone talks hit a snag due to disagreements among the eurozone members this weekend, and because of Singapore's high foreign exposure, any price fall in that 20% portion will also affect the HBD portion.

In any market where there is a large foreign exposure, there will be a greater degree of volatility because foreign buyers will be the first to leave that market. They will not be staying around to weather the storm. It is the PR holders and citizens who will be staying put.

Foreign buyers accounted for 19% of all private residential property purchases in the second half of this year, up from 7% in the first half of 2009. These figures exclude purchases by PRs, The Straits Times reported.

Sales of new private homes hit a record 16,292 last year. This year looks to be another banner year with 13,688 units sold in the first 10 months, Straits Times reported. That imposition of the stamp duty is sending a message to investors and speculators that the government is seriously concerned about the formation of any bubbles in that 20% private residential portion.

Let us return to Malaysia. For years, property consultants and developers have been trying hard to sell high-end properties, both landed and high-rise to foreigners. They are at a loss why despite comparatively low prices in Malaysia, our properties have not enjoyed the same attention as those in Singapore, Hong Kong, China, Vietnam and other southeast Asian countries.

The fact is, low prices alone will not attract foreign buyers. While property ownership seems easy enough foreigners can buy residentials exceeding RM500,000 there are many other factors that play an important role. Notwithstanding all these, do we want a large foreign exposure? There are mixed views about this among property consultants, developers and government.

It is a fact that the Malaysian property sector will not have the global intricacies tied up with being an international financial hub, so we need not be too worried about that. But we do need to mull over our own property sector as a result of Singapore's move and consider how we can fine-tune our property sector less the threat of eurozone woes come knocking on our doors. We do have a lot of high-end properties waiting to be sold and authorities who approve such projects need to consider today's global climate.

Assistant news editor Thean Lee Cheng has two questions: Do we want a large foreign exposure? And if not, what are we to do with the thousands of units of high-end housing which are unsold today?

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